The U.S. economy shows healthy job increase in May

Continuing an upward climb:

May's jobs, unemployment, and labor-force participation extend positive U.S. economic outlook

What’s not to like about the May jobs report? The U.S. economy added 390,000 new jobs, reflecting not only a healthy increase, but also an upside surprise with new jobs surpassing the expected increase of 318,000. This news builds upon a slight upward revision to April’s jobs gains, which are now reported to have been +436,000 versus the originally reported 428,000.  Meanwhile, the unemployment rate held steady at 3.6 percent.

Three positives for May jobs

First, employment gains extended across multiple sectors.  The leisure and hospitality sector continued its trend of hiring new personnel, adding 84,000 new jobs in May, closely mirroring April’s increase of 83,000.  Professional and business services, education, and healthcare each added around 75,000 jobs.  In the goods-producing industry, construction and manufacturing added 36,000 and 18,000 new jobs, respectively, although motor vehicle and parts employment fell 4,000 due to the ongoing chip shortage.

Second, the labor-force participation rate edged up to 62.3 percent, passing April’s rate of 62.2 percent.  This is a positive sign that, despite the “Great Resignation,” a healthy labor market is drawing some people back in search of more fulfilling employment opportunities.

Third, wages rose by 5.2 percent in May compared to a year ago, although this reflects a slight dip from April and March’s readings of 5.5 and 5.6 percent.  As we have noted in the past, increases in labor-force participation and growing labor pools help tamp down wage pressures. 

Added pressures can likely be absorbed by the labor market

As unemployment, labor-force participation, and higher-than-expected jobs growth continue their positive trend, we are optimistic that the labor market can absorb some of the added pressures of inflation and higher interest rates.

More specifically, the recent softening of wage pressure could help alleviate upside pressures on inflation, allowing the Fed to keep the size of interest-rate increases in check later this year.  In the coming months, if more modest wage growth is matched by a discernible slowing in inflation, there would be more clarity around the Fed’s future rate path and open the possibility of a rate-policy pivot. 

All these factors together reflect a positive outlook for the U.S. economy